Update: Energy Prices and Heat Pumps

Winter is long gone and the heat of summer is with us. The challenges of climate change and what to do about it continue, especially in this wacky election year. As a Lexington HeatSmart Advisor, I continue to field numerous questions on electrification, electricity prices and heat pumps. Here’s a heat pump update as we (too quickly) approach fall and winter:

• Electric prices: Rates have increased and most likely will increase in the future as the electric grid is modernized, but natural gas prices will increase, too. 
• Importance of climate change to you: If the issue is a priority for you and you’ve got the funds, by all means convert to heat pumps using renewable electricity. Heat pumps are a perfect technology for transitioning away from fossil fuels and reducing emissions, and they work in cold climates.
• Air conditioning: Many Lexington residents are tired of being hot. If you want to add air conditioning or want to replace your old AC system, heat pumps are a great choice.
• Fuel oil or natural gas cost savings: Some residents want or need real dollar savings and acceptable paybacks on investment to make the switch to heat pumps, even after equipment rebates from the Commonwealth or Federal tax credits. Currently, your savings most likely will be higher if you switch from oil. Savings will be lower with natural gas.
• Take advantage of free assistance for Lexington residents: Sign up for an initial consultation through the Lexington HeatSmart program.

Electric Prices Continue to Increase 

Higher electric rates create a barrier to electrification and conversion to heat pumps. Both components of electric rates, for (1) renewable electric supply and (2) Eversource’s electric delivery to your home, have risen significantly over the last 18 months. As shown in the chart below, in December 2023, electric supply rates under Lexington’s Community Choice Program increased as a result of a new supply contract. For the 100% Green Power option (under which most residents are enrolled), rates increased by 30%. But there was a double whammy! As of January 1, 2024, Eversource’s electric delivery rate increased by 13%. Recently, as of July 1, 2024, Eversource’s rates went up another 6% as a result of increases in energy efficiency charges. Together, since January 1, 2023, the total electric rate per kilowatt-hour has increased 24% to almost 31 cents.

Natural gas prices have also risen, especially the price of natural gas delivery by National Grid, which has risen by over 15% annually over the last few years. However, the price of natural gas supply, which represents the other part of your gas bill, while volatile, has trended lower, thus mitigating the overall increase.  

What might be the future path for electric rates? We are lucky in Lexington that the prices under our new electric supply contract are fixed until December 2026. In the future, it is hoped that renewable power prices decline with more construction and better technology. Advocates lobby for the benefits of renewables, especially offshore wind power. Given the debris from a broken turbine blade washing up on its beaches, the residents of Nantucket might have a different view on the future of wind. The climate bill now winding its way through the Massachusetts legislature may quicken the process of building renewable generation, thus lowering future prices. With absolute certainty, Eversource’s delivery rates will increase in order to pay for the monumental task of modernizing the electric grid.

One note to those who have converted to heat pumps for heating. Most residents are on Eversource’s R-1 Residential rate for electricity service. However, Eversource’s R-3 Residential Space Heating rate is about 3.5% cheaper. If you have installed heat pumps, make sure you are on the right Eversource rate. To change your rate classification for billing purposes, residents most likely need to call Eversource and explain that you now heat with electricity. 

Converting to Heat Pumps Makes Sense

There is a lot of rhetoric surrounding electrification and heat pumps, and the transition from fossil fuels. Heat pumps continue to make sense for the planet and for your comfort.

Heat pumps using renewable power decarbonize the residential heating segment and reduce greenhouse gas emissions. Enough said! In addition, in this summer season, realize that heat pumps not only heat but are also great air conditioners. If improving the year-round comfort of your home is a goal, think heat pumps. As my fellow HeatSmart Program advisor and Select Board member Mark Sandeen concludes “at least half of the heat pumps installed are being installed to replace AC units or to install AC for the first time. My heat pumps replaced aging AC units that the AC company was refusing to service.” Heat pumps heat well, even in cold climates. As Abode Energy Management (Lexington’s independent partner for our heat pump program) states, “a properly designed heat pump system meets 100% of any weatherized home’s heating needs in Massachusetts.”

Typically, the next topic in any heat pump discussion turns to investment dollars and cost savings. Converting to heat pumps is not cheap, but there are significant rebates available from the Commonwealth as well as Federal income tax credits. Massachusetts along with the other New England states continue to push conversion to heat pumps from fossil fuels. Contrary opinions of course exist. You may see or hear marketing campaigns by fuel oil companies. A recent Harvard Kennedy School op-ed in the Boston Globe and report led with the headline that in Massachusetts “heat pumps can help meet climate goals but can hurt pocketbooks” by increasing annual bills, especially those that heat with natural gas. Both major utilities, Eversource and National Grid, have large electric utility businesses which will benefit immensely from grid modernization, but also have substantial investments in natural gas utilities which they want to protect and grow if they can.

Can one try to cut through the chatter and conflicting opinions to provide take-aways through a consumer only lens?

• Installing or replacing AC systems: Consider heat pumps first!
• Heating with fuel oil: Most will save, currently about $50 -$100 a month, by converting to heat pumps which could represent annual savings in excess of 25%. There should be a payback on your conversion investment. Savings of course will vary with the price of oil. 
• Heating with natural gas: There is a great deal of natural gas in the US, and it is relatively cheap. Delivering that natural gas to New England through the interstate pipeline system and locally via National Grid is expensive. Overall message: currently, residents probably are not going to save a lot (maybe up to $50 a month) by converting to heat pumps. Payback on investment may not be great. 
• Considering solar with heat pumps: Adding solar will change the savings equation considerably. Initial investment is larger but savings can be substantial.   

Don’t Forget that Weather Matters

If you start to use electricity to heat your home, your electric bill is going to go up. Many residents using heat pumps for the first time were quite surprised when they got their bills for January 2024. Rates went up by 21% in January through the combination of Lexington’s new supply contract and Eversource’s higher delivery rates. In addition, January 2024 was 17% colder in the Boston area than January 2023. In combination, residents heating with electricity may have seen bills go up by over 40% in January. As we know, our weather changes often. The 2023/2024 season turned out to be only 3% colder than the 2022/2023 season, and actually 9% warmer than long-term averages. It is getting warmer and our heating bills may be going down! 

Steps for Lexington Residents to Take

There is still a significant lack of information and understanding among consumers to move the needle for heat pump conversion. It is hard to make change at scale one house at a time. There are a lot of myths associated with going electric which create real barriers. 

Residents might consider making small changes first. Energy-related behavioral economists are starting to think about the potential for “gateway electric technologies” as bridges to future and larger electrification. For example, I have had a very positive experience with replacing my gasoline lawn mower with an electric one. A number of my HeatSmart clients have started with installing a heat pump in only a portion of their house, such as a room addition. Some of my neighbors have opted for hybrid rather than electric vehicles. These positive experiences may pave the way to greater acceptance of bolder electrification moves later. Climate advocates aren’t a big fan of small steps that allow consumers to continue to use fossil fuels. Hopefully we will be smart enough to move forward together. 

Information and services under the Lexington HeatSmart program are great places to start your transition to clean heating technology. Trained volunteer advisors are here to help. The design, sizing, equipment selection, and installation are all critical to a successful heat pump conversion. If you don’t do it right, you are not going to get the performance, comfort, and savings you want. The market is changing. You can now hear, see, and read a lot of heat pump sales pitches from installation contractors. However, there are many contractors out there, and unfortunately, their quality varies. Electric heating installation is a relatively new business in New England: experience is growing but it is still a complex project. As part of its program, Lexington, working with Abode, provides a vetted Participating Contractors List to help residents and encourages you to start with this list on your heat pump journey.